WASHINGTON – The House Natural Resources Committee is expected to release a revised version of its Puerto Rico bill on late Friday or Monday, including a modification designed to avoid a constitutional challenge if the legislation is enacted, sources said.

Some critics and federal agencies had warned the bill would violate the Uniformity Clause of the U.S. Constitution, the sources said. That clause, in Article 1, Section 8, says, "Congress shall have power … to establish … uniform laws on the subject of bankruptcies throughout the United States."

The problem, critics and officials from the Justice and Treasury Departments said, according to the sources, was that the bill applied only to Puerto Rico and not to other U.S. territories. It was not uniform as far as the territories.

To preempt a legal challenge on this issue, the bill has been revised to permit the other four U.S. territories, should their financial situations plummet, to opt into its provisions, the sources said. The territory's legislatures would have to pass resolutions allowing the opt-in and their governors would have to sign them.

As a result, Guam, the U.S. Virgin Islands, America Samoa, and the Northern Mariana Islands could opt for the creation of an oversight board that would have the sole ability to file a petition for debt restructuring.

Speaker Paul Ryan (R-Wis.) blasted Wall Street investors on Wednesday as he tried to tamp down conservative discontent with a bill to assist Puerto Rico.

The GOP leader charged that “special money interest groups on Wall Street” are trying to sabotage the legislation by billing it as a “bailout.”

ADVERTISEMENT
Ryan said that the government will be forced to actually bail out the island if Congress fails to act, predicting massive defaults on its bonds.
“Many big-money interest groups on Wall Street know this and have put a lot of money toward sabotaging this legislation in order to force a last-minute bailout upon Puerto Rico, putting U.S. taxpayers on the hook for their bad loans,” his office said in a lengthy statement. “They call this a bailout, because they know it is not. And a bailout is what they want.”

Ryan’s push comes as GOP leaders are trying to pull in enough support from both parties to clear legislation that would impose a fiscal oversight board on Puerto Rico and allow it to restructure some of its debts.

He dismissed “buzzwords and special interest ad campaigns” that describe the package as a bailout, and instead argued the House plan imposes much-needed fiscal rigor on the island while avoiding a messy set of defaults.

Four sets of reforms are needed to address the island’s problems. First: Bankruptcy protection should be enacted, to ensure that creditors rather than taxpayers take the hit from the island’s insolvency. This is not ideal, since it involves retroactively changing the rules on creditors. But most major changes in bankruptcy law have had retroactive application; this change is needed because of a hole in the old law; and it is better than the likely alternative of taxpayer exposure.

Second: The island needs fiscal reform to prevent a recurrence. That should include cuts in public-employee pensions. Third: The island needs to change its anti-growth policies. Its labor laws should be less restrictive, and many of its public enterprises privatized. Fourth: Federal policies that hobble the island should end. The federal minimum wage is too high for Puerto Rico, and the protectionist Jones Act governing cargo shipments raises costs.

Puerto Rico Gov. Alejandro García Padilla said Sunday it was a “painful decision” to default on $422 million in bond payments, a statement panned by Puerto Ricans on and off the island.

“He didn’t say one word on how he was going to fix this. This government has absolutely no credibility whatsoever,” said Emilio Martínez, who lived in New York for 30 years before retiring and returning to the island in the 1990s.

Martinez continued, saying the government can't blame previous administrations after four years in office, "There is rampant corruption and a spend, spend, spend mentality. They think they can borrow and spend all they want and just say don’t pay it and not be held accountable."

He said federal oversight is necessary "because obviously the local politicians don’t know how to handle it. We have higher taxes than in New York and people are leaving in droves. All that will be left are us older folks. Everyone is very worried and disillusioned.”

“It’s evident with the overspending that island leaders can’t govern themselves. It’s a mess. They need to put in a control board much like they did with Washington, D.C., in the 1980s to take over and put things in order.”

A congressional committee is considering legislation that would establish a federal review board, but it’s a controversial proposal because it would not be accountable to the territory's government.

“We have reached a tipping point,” said Gretchen Sierra Zorita, an island native currently living on the mainland. “They’ll pay the very basic services, if that, and that’s it. I’m real worried about the impact this is having on all the small businesses and all the professionals. Those are the backbone of the economy and many are leaving. There is a real brain drain that’s only going to get worse.”

One of the professions hit particularly hard by the exodus is the health field. The island’s medical association estimates than at least one doctor leaves the island every day.

Spoiler:

José Rafael Cruz Cestero is a board-certified physician in Puerto Rico, one of just approximately 90 anesthesiologists left on the entire island.

“It’s very difficult, and every day it gets worse. A lot of my colleagues have left."

Cruz, who said his tax rate is "about 45 percent," blames the island's ills on a bloated government and corruption.

"Just think, New York City has one mayor for more than 8 million people. Here there are 78 mayors for just over three million people because every city and municipality has a mayor and a municipal council and vice mayors and all that,” said Cruz.

“I’m still here because I want to help my patients, and every time a doctor leaves, it’s like a stab in the heart because we are the ones who are moving the island’s economy. But I’m fed up with this. The government doesn’t care about the people. As much as I want to stay, I am considering leaving.”

Maritza Reyes is a local district attorney in Puerto Rico and says the dire economic situation is a particularly sharp double-edge sword for those on the government payroll.

“There is a lot of anxiety, and that brings desperation and an increase in crime. We’re seeing more carjackings, more home invasions, more robberies. So we prosecute more cases, our workload has gone way up, but we have fewer resources and manpower; everything’s getting cut. We can’t even pay police overtime to help with our cases. And on top of that we live with the possibility of getting laid off. I don’t even know that when I retire I’ll actually have my retirement. It really is an unprecedented situation, and a very sad one.”

Reyes says that she and her husband are thinking of leaving, exploring various options of relocating to the states.

“This is my country. We want to stay. We really do. We’re trying real hard to stay but it’s real hard. We can’t continue to live like this, and we’ll have to go if it doesn’t get any better.”

Cruz and Reyes say finding peers who haven’t toyed with the idea of leaving the island is difficult.

Meanwhile, a social media movement with the hashtag #YoNoMeQuito — "I’m not going anywhere" — has more than 67,000 “likes” on Facebook. It urges island residents to focus on working for the economic and social benefit of Puerto Rico, highlighting stories of business entrepreneurs and others.

“Even though we may be in darkness, there is light. Join us to give your upmost talent and your abilities to serve Puerto Rico,” says the movement's website.

Recently retired Elba Longo says that optimism is what is giving her the confidence to go back to Puerto Rico after decades on the mainland.

“I’ve always had it in my heart to go back. Washington, D.C. went through the same financial problems, and look at how it’s rebounded. I have faith that the same thing will happen on the island.”

__________________Anyone who cannot cope with mathematics is not fully human. At best he is a tolerable subhuman who has learned to wear shoes, bathe, and not make messes in the house.

To solve this situation, we need only look back in time to how Congress addressed the financial woes of Washington, D.C., in the 1990s. The D.C. model worked because its cornerstone was a strong independent control board. In this case, Congress created an oversight board that supervised the city’s budgeting and spending practices, which stayed in place for six years until D.C. was able to get back on sound financial footing and had its fourth consecutive balanced budget.
We could make this same practice work in Puerto Rico — a strong independent control board would provide oversight of the island’s finances and help them regain control of their bloated budget. Republican proposals in Congress have called for such a board to help the island reassess its financial situation and make structural changes that will get Puerto Rico’s fiscal affairs back on track. Such a move would be an essential first step to remedying this crisis.

But an independent control board alone is not enough. The island’s creditors – seniors, savers, and investors from all across the world — need to have a say in how the government debt is restructured. Remember, two-thirds of U.S. pension and retirement funds are invested, at least partially, in Puerto Rico municipal bonds. Seniors, retirees, and families would lose billions if these bonds aren’t repaid; they’d get only pennies on the dollar back for what was supposed to be an essentially risk-free investment.

Nowhere in John Oliver's recent 20-minute segment on Puerto Rico's massive $70 billion debt (it officially defaulted on its payments yesterday) does he mention public employee pensions and benefits and the role they've played in the island territory's financial crisis.

He talks about the various business tax incentives that helped create the situation, and there's actually a lot to learn from his segment, so we shouldn't dismiss it entirely. But like a lot of political activism over municipal debt crises, Oliver zeroes on only certain components and downplays or outright ignores others in order to create a class of villains and victims that doesn't completely reflect reality. In this case, he sets his sights on the whipping boys who run hedge funds who want to make sure Puerto Rico prioritizes paying their municipal bond debts. The victims are the people of Puerto Rico who are seeing all their government services reduced (and taxes increased) as a result of the island struggling to scrounge up money to pay its bills.

What is misleading in Oliver's story is the assumption that what Puerto Rico's government had been spending its money wisely and appropriately for the benefit of the populace it serves prior to this crisis. And when you look deeper, what you see is very similar to what we see in ailing municipalities in the United States: Puerto Rico has been throwing its money at its employees now and not adequately preparing for what would come down the line. In fact, not only does Oliver not engage in this issue at all, he ends a quote by former reformist Gov. Luis Fortuño by accusing him of being part of the problem (while presenting no facts), though Fortuño fought hard to salvage Puerto Rico's financial situation. For a better perspective, watch Fortuño speaking at Reason Weekend back in 2012 here.

Puerto Rico’s default on most of a $422 million debt payment on Monday puts the spotlight back on Washington to enact a rescue package for the island, and congressional aides said a revised bill would be introduced next week.

On Monday, Treasury Secretary Jacob J. Lew renewed his call on Congress to act swiftly, warning in a letter to House Speaker Paul Ryan that without a legal framework for a debt restructuring, Puerto Rico is in danger of getting caught in “a series of cascading defaults” that could lead to a taxpayer bailout.

“This is not just a matter of financial liabilities and litigation,” Mr. Lew said in the letter, which was circulated to other lawmakers and released publicly. Late last year, Mr. Ryan instructed the relevant House committees to find a “reasonable solution” for Puerto Rico.

.....
Puerto Rico did pay $23 million, representing interest due on Monday. The remaining $399 million that was not paid was to cover the principal.

Congressional aides said on Monday they agreed that the latest default showed an urgent need to establish federal oversight and restructuring powers for Puerto Rico, but they could not see a way to speed up the process. In 1984 Congress explicitly barred Puerto Rico from restructuring debt in bankruptcy, without leaving any rationale for doing so.

......
Legislators on the island thought a bank run might ensue, and they raced to enact a measure giving the governor the power to halt debt payments by the development bank. Other, smaller debt payments were also due from other branches of government on Monday, but the moratorium law was initially written to halt only debt payments by the Government Development Bank.

That means Puerto Rico did not default on Monday on a $1.5 million monthly payment on its general-obligation debt, said Matt Fabian, a managing director at Municipal Market Analytics. General-obligation debt is given top priority by the Puerto Rico Constitution, and if the island skipped that type of payment it would face lawsuits from its creditors.

“It’s all about avoiding powerful litigation for as long as possible,” Mr. Fabian said, explaining why he thought Puerto Rico made one payment and defaulted on the other.